# Prop. Treas. Reg. § 1.167(n)-3: Income from the property. Proposed regulation, not in force. REG-103823-99, 67 FR 38025, published 2002-05-31 . Interprets 26 U.S.C. § 167. Par. 2. Sections 1.167(n)-0 through 1.167(n)-7 are added to read as follows: (a) Current year income —(1) In general. Current year income is the income from an income forecast property for the current year (less the distribution costs of the income forecast property for such year), determined in accordance with the taxpayer's method of accounting. All income earned in connection with the income forecast property is included in current year income, except as provided in paragraph (d) of this section. In the case of a film, television show, or similar property, such income includes, but is not limited to— (i) Income from foreign and domestic theatrical, television, and other releases and syndications; (ii) Income from releases, sales, rentals, and syndications of video tape, DVD, and other media; and (iii) Incidental income associated with the property, such as income from the financial exploitation of characters, designs, titles, scripts, and scores, but only to the extent that such incidental income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related to the taxpayer (within the meaning of section 267(b)). (2) Special rule for advance payments. In the year that income forecast property is placed in service, current year income for an income forecast property includes income included in gross income for any prior taxable year in connection with the property. This paragraph applies separately to any cost treated as separate property under § 1.167(n)-5(c). (b) Forecasted total income. Forecasted total income is the sum of current year income for the year that income forecast property is placed in service, plus all income from the income forecast property that the taxpayer reasonably believes will be includible in current year income in subsequent taxable years (as adjusted for distribution costs) up to and including the 10th taxable year after the year in which the income forecast property is placed in service. Forecasted total income is based on the conditions known to exist at the end of the taxable year for which the income forecast property is placed in service. (c) Revised forecasted total income. If information is discovered in a taxable year following the year in which income forecast property is placed in service that indicates that forecasted total income is inaccurate, a taxpayer must compute revised forecasted total income for the taxable year. Revised forecasted total income is based on the conditions known to exist at the end of the taxable year for which the revised forecast is being made. Revised forecasted total income for the taxable year is the sum of current year income for the taxable year and all prior taxable years, plus all income from the income forecast property that the taxpayer reasonably believes will be includible in current year income in taxable years after the current taxable year up to and including the 10th taxable year after the year in which the income forecast property is placed in service. Where a taxpayer computes revised forecasted total income in accordance with this § 1.167(n)-3(c), see § 1.167(n)-4(b) for the computation of the allowance for income forecast depreciation. (d) Special rules —(1) Disposition of the property. In computing the depreciation allowance for an income forecast property, income from the sale or other disposition of income forecast property is not included in current year income. However, if the income forecast property is disposed of prior to the end of the 10th taxable year following the taxable year in which the property is placed in service, income from the sale or other disposition of income forecast property is taken into account in calculating revised forecasted total income both for purposes of calculating the allowance for depreciation in the year of disposition and for purposes of applying look-back. See § 1.167(n)-4(d)(3) and § 1.167(n)-6(c)(2). (2) Syndication income from television series. (i) In the case of a television series produced for distribution on television networks, current year income and forecasted total income (or, if applicable, revised forecasted total income) used in the computation of the depreciation allowance for such property under § 1.167(n)-4 need not include income from syndication of the television series before the earlier of— (A) The fourth taxable year beginning after the date the first episode in the series is placed in service; or (B) The earliest taxable year in which the taxpayer has an arrangement relating to the syndication of the series. (ii) For purposes of this paragraph (d)(2), an arrangement relating to syndication of a series of television shows means any arrangement other than the first run exhibition agreement. For example, an arrangement for exhibition of a television series by individual television stations is an arrangement for syndication if it results in an exhibition of one or more episodes of the series beginning after one or more episodes of the series have been exhibited on a television network. A first run exhibition agreement is an agreement under which any episode (including a pilot episode) of a television series is first placed in service within a particular market. (3) Apportionment of income in certain circumstances. When income from a particular source relates to more than one income forecast property the taxpayer must make a reasonable allocation of the income among those properties based on all relevant factors. Situations where allocation is necessary include income generated by a syndication arrangement involving more than one income forecast property, incidental income described in paragraph (a)(1)(iii) of this section that relates to more than one motion picture, and income associated with income forecast property when expenditures relating to the property have given rise to separate property as defined in § 1.167(n)-5(c). For example, when a taxpayer sells or licenses merchandise that features the likeness of a character that has appeared in more than one film, relevant factors might include merchandise sales figures prior to the release of the subsequent film, specific identification of certain merchandise with one particular film, and the taxpayer's prior experience with similar situations. (4) Examples. The provisions of this section are illustrated by the following examples: Example 1. C produces a motion picture film featuring the adventures of a fictional character. C sells merchandise using the character's image, enters into licensing agreements with unrelated parties for the use of the image, and uses the image to promote a ride at an amusement park that is wholly owned by C . Pursuant to paragraph (a)(1) of this section, income from the sales of merchandise by C to consumers and income from the licensing agreements are included in current year income. No portion of the admission fees for the amusement park is included in current year income because the amusement part is wholly owned by C . Example 2. Assume the same facts as in Example 1 . C forecasts that the cumulative amount of current year income it will earn (net of distribution costs) from the year it places the motion picture film in service through the end of the 7th taxable year thereafter to be $345x. C also forecasts that the motion picture film will earn current year income of $155x from the beginning of the 8th taxable year through the end of the 10th taxable year after the year the income forecast property is placed in service. C anticipates the sale of the motion picture film at the end of the 7th taxable year after the year the property is placed in service and in fact sells the motion picture film for $200x on the last day of the 7th taxable year after the year the property is placed in service. C 's computations of forecasted total income must reflect the fact that C forecasts that $500x will be earned by the motion picture film through the end of the 10th taxable year after the year the property is placed in service ($345x from the year the film is placed in service through the end of the 7th taxable year after the taxable year that the property was placed in service, plus $155x C forecasts from the beginning of the 8th taxable year through the end of the 10th taxable year after the year the property is placed in service). Even though C only expects to earn $345x prior to the sale of the film, C may not use $345x as forecasted total income in computing its depreciation allowance under the income forecast method. Similarly, C may not use the combination of the amounts it expects to earn prior to the sale ($345x) plus the anticipated sales proceeds ($200x) or $545x as forecasted total income, except when computing its depreciation allowance for the 7th taxable year after the year in which the income forecast property was placed in service and for purposes of computing look-back interest.